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Thursday, November 20, 2008
 
MLB, Japanese Baseball, and US Antitrust Law

Today’s NY Times has an interesting article about Junichi Tazawa, the 22-year old Japanese pitching star. Tazawa first drew attention for his 97-mph hour fastball, but has now become the center of controversy because he is the first notable amateur Japanese baseball player to entertain offers from Major League Baseball teams before playing for or even signing with a Japanese team. Japanese baseball officials are worried about future Japanese stars following suit and therefore draining the talent pool from Japanese professional baseball, possibly threatening the viability of Nippon Professional Baseball (MLB’s Japanese counterpart).

According to the article, “[m]any Japanese baseball officials are outraged that United States teams are courting Tazawa.” Why the outrage? Because the Japanese officials “insist it is long-established practice for amateurs like him to be strictly off limits to (U.S.) major league clubs.” According to a press release from Nippon Professional Baseball: “This was more than just a gentlemen’s agreement, but rather an implicit understanding that the major leagues would do no such thing…. That a handful of clubs from the majors is trying to break this gentlemen’s agreement is truly regrettable.”

The article also notes that Yankees General Manager Brian Cashman acknowledged the existence of some form of agreement:

“I’m old school — there has been an understanding,” said Cashman, whose team has a formal cooperative relationship with the Yomiuri Giants, a team particularly upset with the Tazawa affair. “There’s been a reason that Japanese amateurs haven’t been signed in the past, so we consider him hands off.”

As the article also points out,

The protocol agreement between Major League Baseball and Nippon Professional Baseball does not address the signing of either nation’s amateur players. It does formalize how Japanese veterans may switch continents: on the open market after nine seasons in the Japan major leagues, or earlier if a player’s club chooses to auction off his rights through a procedure commonly known as posting. Posting was established in 1998, and established stars like Daisuke Matsuzaka have generated as much as $51 million for their Japanese clubs. Losing top amateurs could hurt that pipeline.

An unnamed Major League Baseball official apparently “angrily rebutted” the notion that any agreement existed that prevented MLB teams from signing amateur Japanese players (and vice versa). Why the “angry” rebuttal? Well, if such an agreement did exist, it would likely be a violation of Section 1 of the Sherman Act, as it is a classic group boycott (and a horizontal market division). The best way for MLB to avoid Section 1 liability in this case may simply be to argue that there is no agreement between MLB and Japanese baseball. Without an agreement, there can be no violation of Section 1. That argument obviously becomes more difficult to make, however, when the general manager of one of MLB’s marquee franchises publicly admits that an agreement does in fact exist.

What about the baseball antitrust exemption? Well, there is an argument (albeit a weak one) that, after the Curt Flood Act of 1998, the baseball antitrust exemption no longer exists. Assuming it does exist, however, what is the impact of the exemption and the Curt Flood Act on a possible suit brought against MLB in this context?

Well, the Act states, in relevant part:

Section 27(a) Subject to subsections (b) through (d), the conduct, acts, practices, or agreements of persons in the business of organized professional major league baseball directly relating to or affecting employment of major league baseball players to play baseball at the major league level are subject to the antitrust laws to the same extent such conduct, acts, practices, or agreements would be subject to the antitrust laws if engaged in by persons in any other professional sports business affecting interstate commerce.

Section 27(b) No court shall rely on the enactment of this section as a basis for changing the application of the antitrust laws to any conduct, acts, practices, or agreements other than those set forth in subsection (a). This section does not create, permit or imply a cause of action by which to challenge under the antitrust laws, or otherwise apply the antitrust laws to, any conduct, acts, practices, or agreements that do not directly relate to or affect employment of major league baseball players to play baseball at the major league level, including but not limited to -
1) any conduct, acts, practices, or agreements of persons engaging in, conducting or participating in the business of organized professional baseball relating to or affecting employment to play baseball at the minor league level, any organized professional baseball amateur or first-year player draft, or any reserve clause as applied to minor
league players.


Does the agreement (assuming, for the sake of argument, that one exists) between MLB and Japanese baseball implicate Section 27(a), 27(b)(1), or both? I don’t think it matters. I think a court would reject application of the baseball exemption simply because MLB has entered into an agreement with a non-MLB party. Courts—before and after the Curt Flood Act—have only applied the baseball antitrust exemption when the agreement at issue exclusively involved MLB-related entities. Thus, regardless of one’s view of the scope of the Curt Flood Act, I think any agreement between MLB and Japanese baseball would be subject to scrutiny under Section 1, so Brian Cashman may want to choose his words more carefully in the future…





9 Comments:

Cashman may be making the statement that such an agreement exists simply to remove direct competition for this player as a current free agent, believing that Yomiuri Giants would sign him and then the Yanks would get first crack at him...

Anonymous Anonymous -- 11/20/2008 5:13 PM  


Interesting post. Putting aside the "implicit" agreement you discussed, what about the expressed written agreement between the two leagues that restricts a Japanese player from freely negotiating his services with MLB teams? It just hasn't been challenged (yet). Could you imagine if GM and Ford agreed in writing that GM must pay Ford a "posting fee" before hiring somebody that currently works for Ford?

Blogger Rick Karcher -- 11/21/2008 7:07 AM  


Rick--

Thanks for the comment. I think there's no question that the posting fee also raises U.S. antitrust issues, just not the issue directly raised by Tazawa. I don't think MLB and Japanese Baseball compete in quite the same way as competitors do in a more traditional/classic industry, such as the auto industry. I think MLB and Japanese Baseball can at least make an argument that some cooperation between the two entities may be procompetitive, so I think GM-Ford is an imperfect analogy (not that there's anything wrong with imperfect analogies). That said, the posting agreement certainly implicates many similar antitrust issues present in your GM-Ford analogy.

Anonymous Gabe Feldman -- 11/21/2008 12:11 PM  


Interesting post, Gabe. I'm not sure I follow your last point, though, that courts have only applied "the baseball antitrust exemption when the agreement at issue exclusively involved MLB-related entities." I can think of several recent cases where the exemption was applied against a non-MLB-related entity. For instance, MLB v. Crist and Morsani v. MLB, both involved entities unrelated to MLB - although in the case of Morsani, the plaintiff admittedly wanted to become affiliated with the league. Therefore, I think that the exemption would likely be applied to a suit under Sherman Section 1.

It is an interesting issue, though, and one that I had not previously considered.

Anonymous Nathaniel -- 11/21/2008 1:35 PM  


Nathaniel--

I did not mean to suggest (though I can see how it could be interpreted this way) that the agreements did not have an impact on a non-MLB entity. You are correct that several of the cases (including Federal Baseball) involved an agreement that had an impact on a non-MLB entity and that non-MLB entities were thus parties to the case. My point is that in every case where a court upheld the baseball exemption, the parties to the actual agreements were MLB entities (which was the case in Crist, Morsani, etc.). In contrast, in Houston Broadcasting, one of the few cases where the exemption was not applied, a non-MLB entity was a party to the actual agreement in question.

Anonymous Gabe Feldman -- 11/21/2008 2:38 PM  


Gabe & Nathaniel: Very interesting debate. Just to chime in, a third possibility could be that even if a court were to find the MLB clubs exempt under the Curt Flood Act, a court may still find the Japanese baseball clubs liable.

Of course, a result of this nature would only expand Japanese detest for American antitrust policy. However, when Congress passes a statute as convoluted as the Curt Flood Act, it invites mangled outcomes.

Blogger Marc Edelman -- 11/21/2008 3:31 PM  


Thanks Gabe, that clears things up.

Good point, Marc. It seems to me that establishing personal jurisdiction over the Japanese league might be problematic, although I must confess I'm not well versed in that area of the law, at least in antitrust cases.

Anonymous Nathaniel -- 11/21/2008 3:48 PM  


Gabe,

I disagree with you that the agreement between MLB and Japanese Baseball is procompetitive in an antitrust sense. While I could see a court making a determination that the agreement is exempt, I don't believe it would withstand a rule of reason analysis.

Blogger Rick Karcher -- 11/23/2008 4:41 PM  


Almost sounds like a catch-22 to me, although, I think no matter the circumstances, if a Japanese gets offered a bunch of money to play in the states, he's going to find a way to play here.
-Rich @ Sports News

Blogger 0s0-Pa -- 3/11/2009 2:12 PM  


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